Have you done this?
To insert a picture into a message
Click the place in the message where you want the image to appear.
On the Insert menu, click Picture, and then click Browse to find the image file.
Enter Layout and Spacing information for the image file as needed.
If you cannot select the Picture command, make sure HTML formatting is turned on by clicking the Format menu in the message window and then clicking Rich Text (HTML). A black dot appears by the command when it is selected.
If message recipients are not able to view your inserted images, on the Tools menu, click Options. Click the Send tab, click HTML Settings, and then make sure that Send pictures with messages is selected. Then resend your message.
To insert a background picture into your message, in the message window, on the Format menu, point to Background, and then click Picture. Click the Browse button to search for the file you want to use.